December 20, 2021
Managing inflation: how to protect your clothing business when costs are going up
By: Peter Gregory
December 20, 2021
By: Peter Gregory
After more than a decade of stable prices, it looks like we’ll see a lot of inflation in the coming months (link: BBC News). Inflation affects every business (big and small) in just about every industry, but it’s especially important in the world of clothing and fashion.
In this beginner’s guide to inflation for small clothing businesses, we’ll explain how and why inflation is such an important issue for the fashion industry. We’ll also share some tips on how to protect your business and stay competitive in the months ahead!
When most of us think of inflation, we think of CPI or RPI. That’s where an economist takes an average ‘basket of goods’ and compares the price of everything in that basket today to last month or last year. These are the UK government’s official measures of inflation (source: gov.uk), but inflation doesn’t just happen in a grocery basket.
Inflation can appear in just about any corner of the UK economy. House price inflation has been going on here in the UK for decades. Some industries have seen wage inflation, too. For those of us in the fashion and clothing industries, the cost of importing raw materials (blank garments and fabric) has gone up, because the cost of bringing goods in from abroad on a shipping container has gone up. When the price of fabric and blank t-shirts starts to shoot up, then that’s the kind of inflation we all need to know about and prepare for.
If your raw materials become more expensive but the price you sell goods at stays the same, then your profit margin will shrink. If you’re not careful, you could potentially make a loss on every item you sell.
When all of your raw materials are becoming more expensive, there is only one way to protect your profit margin. You have to check the profitability of everything you sell on a regular basis (at least monthly), and make lots of tough commercial decisions as quickly as you possibly can.
If you can see inflation eating into your profit margin, there are some steps that you can take to protect yourself:
1: Bulk buy raw materials
If your supplier can give you a better price on a bigger order, then now might be the time to bulk-buy! If you order enough raw materials to last you for a few extra months of trade, you can keep costs under control and maybe even make more money per-product than you’re used to. You need to have enough cash on hand to place a bigger order, and you need to have enough storage space to house the extra stock.
2: Agree long-term supplier contracts
If you haven’t got enough cash on hand to bulk-buy a lot of stock, then ask your supplier about forward contracts or options. This is where your supplier basically sells you the right to buy a fixed amount of raw materials, at a fixed price, for a fixed period of time. You won’t get rock-bottom prices with this kind of contract, but you will at least know for certain what kind of costs you can expect to pay in the months and years ahead.
3: Shop around for a new supplier
Sometimes, your supplier’s prices go up and there’s nothing you can do about it. No matter how hard you try to convince them, they just won’t sell you your raw materials at a better price. When this happens, you have two choices: you can grit your teeth and accept the higher costs, or you can try to find a new supplier.
Picking a great supplier is hard work. You might find a business that can offer you a great price on blank hoodies, but if those hoodies are of a low quality, or if those hoodies don’t get delivered on time, then it’s not worth the hassle. If you’re struggling to find a reliable new supplier, just ask us for help. Here at GB Labels, we talk to fashion and clothing businesses all day every day and we’re always happy to share a recommendation.
4: Find efficiencies in other areas
Raw materials costs are just one piece of the profitability puzzle. If you can’t do anything to stop these prices rising, then see if you can make savings elsewhere in your business. Now may be the time to invest in a new sewing machine or a larger screen printing press. You might be able to change the way you design and manufacture your products and save yourself some labour costs. If you work from a large warehouse or industrial unit, now may be the time to look for a smaller space to save on rent and utilities.
5: Increase your own prices
If the cost to make a garment goes up, the most logical way to protect your business is to increase the price you sell that garment at, so that you can still make the same profit. Price hikes are simple in theory, but they’re often very difficult in practice. You have invested a lot of time and effort in building your customer base, and you don’t want to price yourself out of the market. Research your competitor’s prices carefully before you boost your own, and always make sure that you explain your price hikes to any retailer customers you deal with.
6: Cancel unprofitable products
It’s a painful fact of life that, when costs go up, some products just aren’t as viable as they once were. Your fashion label might have certain product lines that you personally love, but if you just can’t make money on them anymore, you might have to stop selling them. These are often tough decisions, but if you want to weather the storm of inflation, they’re decisions you have to make.
7: Stay vigilant
Inflation is an ever-changing, dynamic sort of problem. It doesn’t just come and go overnight. One week, you might be worried about raw materials, then the next week your postage costs could skyrocket. You could find that consumer price inflation (CPI) shoots up, and all of a sudden your typical customer is nervous about splurging on a new dress. The only way to protect your business properly is to keep both eyes open. Book out some time in your diary every month or week, and check the average price of products similar to your own. Check your utilities bills. Check your postage and marketing costs. Look out for new suppliers. Work hard to spot trouble before it strikes and you’ll be able to protect your business from rising costs.
Inflation is certainly a risky issue for businesses, but it’s not the be-all and end-all. If you spend all your time stressing about inflation and the quality of your work suffers as a result, that’s probably much more dangerous for your business than a few bills going up.
If you’re a solopreneur, our advice is to be aware of inflation. Treat it as a job on your regular to-do list. Spend a little time staying on top of inflation every month, then get back to what you do best. Use your imagination, get creative and produce top-quality garments that people love to wear. After all, that’s what the UK fashion industry is all about!
Thanks for reading!